Why did Detroit go bankrupt?

Detroit’s bankruptcy is sad for 2 reasons.  It shows the decline of one of America’s great manufacturing cities, and also augurs what will likely happen to many more US cities, counties, and states in the future.  Governments are bankrupt everywhere.  Without sounding too libertarian, they over-promise and are inefficient.

The Washington Examiner put together a list of the 10 reasons that Detroit went bankrupt here.  It’s a quick read, but here is my summary from the article:

  1. Detroit’s population has shrunk 60% in 60 years
  2. Detroit has the highest unemployment rate of any major US city
  3. Detroit has $18 billion in general obligation debt
  4. Public employee pensions obligations are huge
  5. Too many public workers (1 for every 55 residents)
  6. Poor pension management (e.g., trips to Hawaii)
  7. Former mayor convicted of 24 felonies (uh-oh)
  8. Public service is failing; 40% of the street lights don’t work
  9. Crime is up; it takes 58 min for police to respond to calls
  10. Entire city is hallowing out.  78,000 abandoned buildings

Affinity diagrams help paint the picture.  While the list was easy to read, sometimes an graphic makes it even easier to see how the pieces fit together.  Taking the list above, I tried to connect the dots between the reasons.  It is correlation, not causality, but it helped me find the common threads.  The reasons fell largely into 2 buckets.

Detroit 10 Reasons for BankruptcyEconomics:  Looks like it is a vicious economic spiral.  The big auto manufacturers are struggling, closing plants, and laying off workers (#2 no the list).  People leave Detroit (#1), which reduces the tax base for the city.  They city cuts back on services (#8), including the police (#9), which creates a sense of insecurity and general abandonment (#10).

Leadership: Seems like there was a lack of leadership generally (#7) which led to over-promising and government over-spending (#3) and hiring lots of government employees (#5), and promising lots of pension benefits (#4) which were both unsustainable, and unfortunately, mismanaged (#6). 

Graphics help.  I am a big believer in lists and graphs.  Lists help summarize.  Graphs help you see the bigger picture and context.  If someone asks me tomorrow Why did Detroit go bankrupt, I can boil it down to 2 reasons:

  • Economics: Economic downward spiral because of the failing auto makers
  • Leadership: Poor government leadership and management

Next time you see a list of “reasons”, trying putting it all together into a mental map.  Try to connect the dots and see what kind of narrative comes out.  Hopefully, it will be for a happier reason that mapping out the reasons for a great city’s demise.

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